Question

Amana Inc. pays its sole shareholder, Carl Lopez, a salary of $200,000. At each year-end, Amana...

Amana Inc. pays its sole shareholder, Carl Lopez, a salary of $200,000. At each year-end, Amana pays Carl a "bonus" equal to the difference between Amana's taxable income for the year (before the bonus) and $75,000. For 2019, Amana reported pre-bonus taxable income of $800,000 and paid Carl a bonus of $725,000. When audited, the IRS determined that individuals working in Carl's position earned on average $300,000 per year. Amana had no formal compensation policy and never paid a dividend. How much of Carl's compensation (salary plus bonus) might the IRS recharacterize as a dividend? Assuming the IRS recharacterizes $500,000 of Carl's bonus as a dividend, what additional income tax liability does Amana Inc. face? (Ignore payroll taxes)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a...
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC records net income of $266,000 after deducting Robert's $79,800 salary. In addition to his compensation, ABC pays Robert dividends of $186,200. a. What is Robert's qualified business income? Would your answer to part (a) change if you determined that reasonable compensation for someone with Robert's experience and responsibilities is $169,800?
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a...
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $246,500 after deducting Robert's $73,950 salary. In addition to his compensation, ABC pays Robert dividends of $172,550. a. What is Robert's qualified business income? b. Would your answer to part (a) change if you determined that reasonable compensation for someone with Robert's experience and responsibilities is $163,950?
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a...
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $303,500 after deducting Robert's $91,050 salary. In addition to his compensation, ABC pays Robert dividends of $212,450. a. What is Robert's qualified business income? $303,500 (This answer is correct) b. Would your answer to part (a) change if you determined that reasonable compensation for someone with Robert's experience and responsibilities is...
For the current year, Maple Corporation, a C corporation, reports taxable income of $252,000 before paying...
For the current year, Maple Corporation, a C corporation, reports taxable income of $252,000 before paying salary to its sole shareholder, Diane. Diane’s marginal tax rate on ordinary income is 35.9 percent (including the additional Medicare tax) and 18.8 percent on dividend income (including the 3.8% net investment income tax). If Maple pays Diane a salary of $198,000 but the IRS determines that Diane’s salary in excess of $150,000 is unreasonable compensation, what is the amount of the overall tax...
For the current year, Maple Corporation, a C corporation, reports taxable income of $397,000 before paying...
For the current year, Maple Corporation, a C corporation, reports taxable income of $397,000 before paying salary to its sole shareholder, Diane. Diane’s marginal tax rate on ordinary income is 35.9 percent (including the additional Medicare tax) and 18.8 percent on dividend income (including the 3.8% net investment income tax). If Maple pays Diane a salary of $222,000 but the IRS determines that Diane’s salary in excess of $175,000 is unreasonable compensation, what is the amount of the overall tax...
Forward Corporation is owned by a group of 15 shareholders. During the current? year, ForwardForward pays...
Forward Corporation is owned by a group of 15 shareholders. During the current? year, ForwardForward pays $550,000 in salary and bonuses to AlvinAlvin?, its president and controlling shareholder. The? corporation's marginal tax rate is 34?%, and AlvinAlvin?'s marginal tax rate is 39.6?%. The IRS audits ForwardForward?'s tax return and determines that reasonable compensation for Alvin is $350,000. ForwardForward agrees to the adjustment. What effect does the disallowance of part of the salary and bonus deduction have on Forward?'s and Alvin?'s...
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto...
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Inc., which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $430,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.) a. Mr. Lion’s salary is $100,000, and Toto pays no dividends. b. Mr. Lion’s salary is $100,000, and Toto distributes its after-tax income as a dividend. c....
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto...
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Inc., which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $220,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.) a)Mr. Lion’s salary is $100,000, and Toto pays no dividends. b)Mr. Lion’s salary is $100,000, and Toto distributes its after-tax income as a dividend. c)Toto is an...
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto...
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Inc., which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $200,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.) a. Mr. Lion’s salary is $100,000, and Toto pays no dividends. b. Mr. Lion’s salary is $100,000, and Toto distributes its after-tax income as a dividend. c....
5. This year Sooner Company reports current E&P of negative $300,000. Its accumulated E&P at the...
5. This year Sooner Company reports current E&P of negative $300,000. Its accumulated E&P at the beginning of the year was $210,000. Sooner distributed $400,000 to its sole shareholder, Boomer Wells, on June 30 of this year. Boomer’s tax basis in his Sooner stock is $75,000. How much of the $400,000 distribution is treated as a dividend to Boomer? 6.Boilermaker, Inc. reported taxable income of $450,000 this year and paid federal income taxes of $94,500. Not included in the company’s...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT